Short-terms investments are planned with a specific goal and purpose in mind, like buying a car or the vacation you planned for example. Hence the need of having extra money over a short span of time is important. Short-term investments are usually 3-6 months investment options that are ideal for anyone looking to make quick money.
Low-interest rates in the market make it difficult to grow your cash. Whether you are a novice or player in investments, you should consider investing in short-term investment and be a part of your financial goal for any emergency funds or unforeseen circumstances. Any good investment portfolio will have a combination of short and long-term financial goals to meet the varied financial needs over a period.
There are a lot of options when investing with short-term goals-
Liquid Mutual Funds:
Liquid mutual funds invest in short-term investment vehicles such as government securities and deposit certificate for up to three months duration. Usually, there is no exit load charge associated with liquid mutual funds, hence the process of entering and exiting the scheme is easier. The annualized returns on the funds are around 4-7% post-tax.
Ultra-short term Mutual funds:
Ultra-short-term funds, on the other hand, invest your money in instruments that have a maturity period of anywhere between 91 days to 1.5 years. Although the mode of investment is not immune to market fluctuations, it protects against interest rate risk. Moreover, since some of the funds charge an exit load sometimes, the stability expected from them is also higher.
Savings Account:
Savings account are liquid investments that allow you to meet immediate cash needs without affecting your investment plans. The initial deposit amount is quite low and you can always deposit your unused funds in the savings account to yield interest benefits. Banks offer interest starting from 4% on savings account. Moreover, since there is no lock-in period for investment, you can continue to get interest benefits on your investment.
Post Office Term Deposit:
Any individual who does not wish to take multiple risks with their investment can consider investing in Post Office term deposits. The annualized returns on these term deposits are between 7 to 7.5 %. These schemes are deemed to be safe since they are backed with the security of government of India.
Small Finance Banks/Payment Banks:
Payment banks offer a higher rate of interest compared to banks for a short duration of 3-12 months. While banks usually offer an interest rate of 4-7.5%, several small financial banks and payment banks offer an interest rate up to 9%.
Fixed Deposits:
Everyone has a pre-conceived notion that fixed deposits are only a long-term investment option. However, fixed deposits can be for a minimum period of 7 days and can go up to years. Although the interest earned on fixed deposit investment is lesser for a deposit made for a short tenor, it is an investment that is not governed by market fluctuations. Hence,FDs are one of the few risk-free safe investment options that must be a part of your short-term investment portfolio.
Ultimately, short-term investments are usually the ones with high quality and low-risk performance, and hence you must choose this investment carefully.
